Karla Dennis, a seasoned enrolled agent and CEO of KDA Tax Consulting with twenty years of experience, is already fielding a surge of anxious queries about the upcoming US tax season – and it's only November. She warns that a perfect storm of factors is set to create a 'nationwide hot mess' for taxpayers when filings land in early 2025, a situation with significant implications for UK businesses and expatriates with US financial ties.
A Rewired Tax Code Creates Confusion and Potential for Fraud
At the heart of the looming chaos is a dramatically overhauled US tax system, reshaped by recent legislation. The changes include headline reforms such as limiting federal tax on tipped and overtime wages, allowing deductions of up to $25,000 for qualified tips and $12,500 for overtime pay.
However, Dennis highlights that the rules for reporting these earnings remain murky. The IRS has admitted many employers lack the systems to comply and has declared a grace period, but this creates a precarious situation. 'It's sort of like, "report what you think you should report, and keep your records,"' Dennis told the Daily Mail. She warns this vague guidance, reminiscent of the problematic Covid-era Paycheck Protection Program, opens the door for potential falsification and fraud.
Government Shutdown Fallout and Natural Disaster Aftermath
Compounding the issue is the lingering impact of the recent 43-day US government shutdown, the longest in history. The IRS is still struggling to clear a backlog of delayed cases, with some clients waiting over 20 weeks for resolutions promised in four to six.
For clients in disaster zones like Los Angeles, where the Palisades Fire destroyed thousands of structures, the stress is multiplied. Vital financial records have been lost, and survivors must now navigate complex new tax rules while reconstructing their paperwork and reporting government aid like FEMA relief as taxable income.
A Perfect Storm Brewing for Tax Season
Dennis, who describes tax professionals as 'second responders' providing emotional triage, is preparing for a calamitous filing season. She notes that as these difficult questions mount, most IRS workers are taking holiday leave between Thanksgiving and New Year's Day, leaving taxpayers with scant support. 'Of course, the IRS is not available,' she said. 'We're going to have calamity.'
The combination of a scrambled tax code, systemic government delays, and paperwork chaos from natural disasters presents a daunting challenge. For UK-based entities and individuals with US tax obligations, proactive preparation and meticulous record-keeping will be essential to navigate the predicted turbulence.
